India’s Corporate lawyers court riches

Well, I guess my last post on the topic of CAs and lawyers having a good time despite a slowdown in the economy and some job losses across the board today got support from an article in the FT which goes on to say -

While the world economy sags, India’s lawyers are enjoying a boom. Lead partners at the country’s commercial law firms are now earning over $1m a year.

“Corporate [lawyer] salaries have ex ploded. They are going up by 20 to 40 per cent,” says Anand Prasad, a partner at Trilegal, a law firm with offices in Delhi, Mumbai and Bangalore.

With rates for domestic corporate lawyers averaging $400 an hour, even junior corporate partners at top firms earn surprising sums – sometimes up to $250,000 before bonus es. Desai & Diwanji, for example, a firm with offices in Mumbai and Delhi, increased its staff remuneration this year by 200 per cent.

While liberalisation of the Indian economy began only in 1991 – making the modern practice of corporate law in India just 15 years old – the profession is already reaping huge benefits from a period of economic growth that will be slowed, but is unlikely to be halted, by the global downturn.

The shift has some painful ramifications, both for foreign law firms prevented from sharing in the bonanza locally by protectionist regulation and large corporations that are unable to use a single international law firm for all their work.

Global law firms such as Clifford Chance see India as ripe with possibility and the “missing link” in their worldwide coverage. There are clear advantages for the UK’s leading firms: India’s legal code has roots in British law, its language of business is English and its economy has been growing by 8 per cent for the past three years.

Yet for now they are shut out. Strict Bar rules prevent large international law firms opening offices or practising Indian or foreign law in the country.

As well as raising the costs of Indian legal services for incoming multinationals, this creates other problems. Lesley Jackson, chief financial officer at United Breweries in Bangalore, says she must work with foreign law firms out of hotel rooms, shuttling back and forth to sign documents in Singapore, and having two law firms (one Indian and one foreign) on every deal. “It makes it difficult not to be able to instruct legal one-stop shops, especially on global deals where it is important to have a brand name,” she says.

Indian corporate lawyers with the right skills to serve such clients are also thin on the ground. Bharat Vasani, general counsel at Tata Group, says: “Outsiders can be deceived by the overall size of Indian law firms. There are actually very few partners capable of doing top level corporate work.”

The profession faces a struggle to service India’s growing corporate sector and foreign investors. According to India Today magazine, the country requires 3,000 new corporate lawyers a year to keep pace with demand. Multinationals such as IBM and Hewlett- Packard and Indian corporations such as Infosys and Reliance have responded by expanding their in-house legal departments. Promod Rao, general counsel of ICICI Bank, says: “Our referrals to domestic firms are few. We even parachute our own guys in to do due diligence work.”

For foreign law firms that need to serve their global clients in India, the Indian Bar restrictions create tortuous logistical challenges. Ashurst, a UK law firm, has a liaison office in Delhi but the firm’s visiting partners say they are careful not to meet clients or give legal advice at these premises, which are more akin to a personal apartment than a law firm office.

Sandeep Katwala, Linklaters’ India head, spends a lot of time working out of his “house hotel”, the Oberoi in Mumbai. Various other hotel suites double up as offices, not only for lawyers but for other professional firms such as Morgan Stanley and Nomura.

Linklaters is one of the most active law firms in India and has advised underwriters on some of India’s largest public listings, such as Cairn India’s IPO and that of DLF, India’s largest real estate company. Last year it formed a referral relationship with a recently established Mumbai law firm, Talwar Thakore & Associates.

Although independent, the firms refer work to each other, share training and run secondments. Kunal Thakore, whose father Shobhan is one of TTA’s named partners, is a partner in Linklaters’ Hong Kong office. Mr Katwala says: “We probably still work as much with other Indian law firms [as with TTA]. But on the Vodafone-Essar transaction, for example, working with TTA allowed us to offer the client an integrated team approach.”

To ensure they gain access to leading domestic lawyers, multinationals and foreign law firms have similar relationships with Indian law firms, such as Amarchand & Mangaldas and AZB & Partners. However, nearly everyone wants to instruct the top partners at these firms, so availability of talent is a problem. For example, during the demerger in 2005 of Reliance Industries, one of the country’s biggest conglomerates, Amarchand & Mangaldas acted for each of the Ambani brothers and their mother.

This type of arrangement would unsettle most western lawyers. “Conflicts in India are scary,” says Mukesh Bhavani, general counsel at Essar Group, the Indian conglomerate. He feels that although the Indian legal market is maturing, it still has some way to go before lawyers can claim to have put proper Chinese walls in place.

Foreign firms, meanwhile, are beating legal restrictions by developing India practices outside the country – and picking off the brightest graduates to staff them. Rajesh Begur, managing partner at ARA Law, a Mumbai-based firm, says he is already feeling the pinch of foreign competition in graduate recruitment. “I went to Jodphur just after [UK law firm] Herbert Smith had been there and I could not recruit one law student.”

The inroads made by foreign firms, however, can spark passionate opposition. Lalit Bhasin, head of the Society for Indian Lawyers, says: “UK Magic Circle firms want to emasculate the Indian legal profession in what amounts to a hostile takeover.”

Such sentiments contributed to the Indian Bar Council’s rejection of liberalisation proposals in November 2007. Firms believe it will be anything from three to five years before India opens up its legal market. For now, international law firms must look on with envy as the country’s local lawyers enjoy the rewards of exclusivity.

Copyright The Financial Times Limited 2008

Bar Council now amenable to Opening up of the Legal sector

The Economic Times today quotes BCI member Jagdev:

“We have told the law ministry that we would consider applications of UK-based law firms only if they allow our lawyers to practice in their country. A stricter set of reciprocity rules would be laid out before we actually set out to start operations,”

The commerce Minister, Mr Kamal Nath, had spoken of this sometime back during his parlays at the WTO, however, there was no movement forward as the Bar Council was dead against it.

A number of UK based firms have already got a tie-up with Indian firms in the form of client referral arrangements such as Allen & Overy and Linklaters which have client referral arrangements with Trilegal and Talwar, Thakore & Associates, respectively. Others like Clifford Chance have liaison offices in India.

However, for the above to actually happen on the ground, it would need a legislative change, but now, it seems, it is only a matter of time.

Pitfalls ahead for the booming KPO sector

Supply side issues may yet trip up the growth story at the high end of the offshoring business.

The conventional wisdom so far has been that knowledge process outsourcing (KPO) is going to be India’s (and indeed, the globe’s) fastest growing sector over the next decade, growing at more than 40 per cent a year.

Upbeat estimates envision the global KPO business soaring from the current $2 billion to $16-17 billion by 2010, with India’s share of this newest, hottest sunrise sector at more than two-thirds, or $12 billion, and employing 250,000 people.

However, while a new White Paper by employment services firm Kelly Services is gung-ho on KPO, a study by RocSearch, a UK-based research services firm, warns that the size of the Indian KPO market in 2010 will be just a little more than $5 billion, and that it will provide employment to only 100,000 people.

Yet another employment services firm— Manpower Services— however offers a way out of current and potential problems through private-public partnerships.

The White Paper by Kelly Services, titled Knowledge Process Outsourcing (KPO)— An Emerging Opportunity, cites the usual reasons why India is considered “by far the most attractive KPO destination”: its competitive salaries (less than 40% of US salaries); proficiency in English (with more than 70 million people speaking it); and its large and competent pool of professionals (nearly 3 million new graduates every year).

A large number of Indian and foreign players have made a successful entry into the KPO domain in India. They include Evalue Serve, Genpact, JP Morgan, Morgan Stanley, SmartAnalayst, McKinsey, Value Notes, Netscribes, Smart Cube, WNS Global, Quest, HSBC, Office Tiger, Citigroup, Reuters, Fidelity, Tech Books, ITC Client Logic and Copal Partners.

“It is estimated that most of them will grow the India KPO business manifold in the coming years, while simultaneously a host of new players will enter the KPO segment in India,” says the Kelly study.

However, RocSearch warns that a severe talent crunch may limit India’s achievements in the KPO domain, forcing a scaling down of market-size expectations from $12 billion to $5 billion, and employment in the sector from 250,000 to 100,000. It adds that analysts may have overestimated the supply of skilled workers in the country.

There is currently an annual addition of more than three million graduates and professional degree and diploma holders to the existing of 100 million. India has the world’s second largest reservoir of engineers and scientists, and the second largest pool of IT manpower. More than six times as many Indians as Chinese go to universities. However, there is the issue of poor employability and competing demands from other sections of domestic industry.

RocSearch observes that, partly as a result of outdated curricula at many professional colleges, only a fraction of the qualified labour force can be considered suitable for employment in reputed companies. Of the three million educated workers added to the labour pool in 2005, it points out, only 500,000 “could be considered employable in a world-class company.”

RocSearch says this would bring down the number of India’s KPO employees in 2010 from the currently projected 250,000 to 100,000. At an average revenue per person of $55,000 in 2010, it projects that the sector will be worth a little over $5 billion by then.

Manpower Services points to the way forward in a White Paper of its own, titled Confronting the Coming Talent Crunch: What’s Next? The paper observes that as the talent crunch intensifies across countries, governments that are finding it difficult to recruit the right talent have started looking to employment services providers for ways to recruit and train individuals for positions that are hard to fill.

Indeed, Manpower has worked with government agencies in Australia, the Netherlands, China, the UK, the US and Canada to address supply-side issues on the labour front.

On the BPO front, private-public partnerships featuring NASSCOM, Dell, Microsoft, the Indian Institutes of Information Technology, and the governments of Andhra Pradesh and Chandigarh, have already taken off.

The NASSCOM initiative is called IT Workforce Development, in which some 20 companies are involved. This covers faculty development, mentoring and internship programmes, with professors work closely with companies.

Source: Business Standard

Global Outsourcing Guide 2006 CIO/ A T Kearney

The CIO's global outsourcing guide, prepared by A T Kearney, brings out how the offshoring world has changed.

The Executive Summary

India remains the leading offshore destination by a wide margin, particularly for U.S. and U.K. companies. "Every year, the risks of moving work to India get lower," says Dean Davison, VP of strategic outsourcing for Nautilus Advisors. "India is increasingly more adept at IP protection, providing resilient infrastructure and managing global relationships effectively." Although Gartner estimates that India currently holds 80 percent to 90 percent of the offshoring market, wage inflation and the increasing maturity of other low-cost areas threaten its future dominance. And as India's star has risen, so have its turnover rates—a growing concern for CIOs. Consequently, Davison expects India's market share to shrink 20 percent by 2010.

Today, less than 10 percent of American companies outsource to more than one country but "most are evaluating multiple locations," says Davison. China, for example. Experts say it could be a powerful rival to India in the next three to five years, even though it currently can't match India's large English-speaking workforce, its level of compliance with international law or its number of IT grads.

Labor and operational costs in Central European countries such as Poland, Hungary and the Czech Republic—attractive outsourcing options for Western European businesses—continue to rise, approaching the level of their customers. So penny-pinching European CIOs are looking deeper into the former Soviet bloc, to countries like Romania, Bulgaria and the Ukraine. Latin American destinations such as Costa Rica, Mexico and Brazil are beginning to attract U.S. back-office and call center work as the need to service Spanish-speaking markets grows. And A.T. Kearney suggests that the Middle East and Africa may be the next frontier for offshore operations—if the politics of the area stabilize.

Although labor costs will continue to be the driving factor behind offshoring, CIOs must internalize the "cost-versus-risk equation," says Ian Marriott, research vice president at Gartner. When going offshore, common risks (infrastructure stability, process maturity, security) become more conspicuous, and uncommon risks (human resource predictability, political stability, rule of law or lack thereof) emerge. Increased competition for the offshore outsourcing dollar promises to raise standards around the globe, but more opportunity equals more risk, and choosing a location is an increasingly complex decision—one we're hoping the "2006 Global Outsourcing Guide" will help you make.

Outsourcing Is Forever - Jack & Suzy Welch

The issue for the U.S. economy isn't outsourcing -- it's bringing in more talent from overseas.

BusinessWeek columnists Jack & Suzy Welch say that the debate over outsourcing should be over by now. It was pretty much all about politics to begin with. The question now is not how do we stop outsourcing, but how do we use outsourcing to enhance competitiveness in what is, and forever will be, a global marketplace?

Well, I guess, this is another nail in the coffin of naysayers.

Resolved: Offshoring is good for America

A great debate featured on Fastcompany. As Ashok Soota points out the issue has to be seen at a micro level and a macro level.

At a micro level, one must empathize with anyone who loses a job whether due to offshoring or obsolescence. Assistance in reskilling such persons must be available at a social and structural level.
At a macro level, jobs lost in one part of the economy are replaced by gains elsewhere. A well-known McKinsey study shows that the U.S. economy gains $1.14 in return for every dollar of offshoring spend in India.

These numbers don't take into account the additional gains from Capital investment. For example, the majority of the funding for MindTree and many other companies is from U.S. sources (institutional and individual) who will benefit when we go public.
The U.S., as the world's largest exporter of services, is the largest beneficiary of open markets. Also, countries with more open approach to offshoring like the U.S. and UK have lower levels of unemployment than relatively conservative economies like Germany and France. All of the above reconfirm that offshoring is good for America.

To say that "if the current trends continue, the US will soon be running a trade deficit in its service category" is not based on facts. The US is the world's No. 1 exporter of services (per WTO/Dept of Commerce report 2005) at $318 billion with 15% share of the world services market. The next largest is UK with 8% share. Indian share of the overall service market (of which programming is a part) is a paltry 1.9%. That HUGE gap is not going to go away soon as feared by you.

On the re-skill issue, I must share with you what happened to computer manufacturing in India when the market was opened up to global competition. Most manufacturers had to shut shop and were replaced by IBM, Dell, Compaq and HP. What happened to the people in India who used to manufacture computers? Some re-skilled themselves, some changed professions and some I am sure, were left behind. The onus to learn and add new value is a global imperative.

Now even the WTO supports Offshore Outsourcing.

Till now it was NASSCOM and its head, Kiran Karnik, who was fighting the battle on behalf of India against “Offshoring” or “Offshore Outsourcing”. However, we now have a WTO Report that has downplayed the impact of Offshoring on production, employment and trade patterns. It has supported its analysis with statistics – the offshoring of IT Services constitutes on 10% (approx) of the total world export of business services. If we look at it in context, IT jobs in the US constitute only 2.3% of the job market of the US.

So what are we really talking about ?

Legal outsourcing makes its case

With KPO catching up the Legal profession has also got into the act. Legal Outsourcing is expected to be a US $163 billion pie and India is aptly positioned to take a sizeable share.

It didn't take much for University of Pennsylvania law school friends David Perla and Sanjay Kamlani to become entrepreneurs. After working as corporate counsels for years in the US, they wanted to make an impact on the legal market.

Last May, they set up legal services firm -- Pangea 3 -- with five US lawyers and two clients. Today, they have a dozen clients, and 15 professionals. And in the next three years, they hope to have about 200 lawyers and 100 clients.

Their clients -- US law firms and legal departments of corporates -- may be American and British, but they are serviced from Mumbai, thousands of miles away.

With offices in New York and India, the duo, both 35, are part of the fast growing legal process outsourcing (LPO) tableau which has hit India in the past one year.

So what's new? Not to be left behind, traditional business process outsourcing (BPO) units are frenetically hiring lawyers to take on this business. And practically every homegrown Indian law firm is building up its case.

Last year, Mumbai-based ALMT Legal, which has been providing LPO services since 2003, spun of this business. The LPO arm -- ALMT Synergies -- is now headed by Mathew Banks, who left behind a lucrative law practice back home in Britain.

“Our work encapsulates a whole range of tasks. It is like a low hanging fruit ready to be eaten,” says Banks.

So today, on offer is online research, reviewing and reporting documents, drafting, litigation support, corporate due diligence support, mortgage processing and intellectual property researching, drafting and applications of patents.

A far cry from the the traditional BPO activity of a voice-based, transaction-oriented model, law firm Nishith Desai & Associates set up its patents practice in 1999. Last year, Desai tied up with old friend, technocrat Sam Pitroda, and transferred his patents business to the newly set up IP-PRO.

Industry sources claim that more than a dozen dedicated patents lawyers are assigned to the business.

Then there is AZB & Partners, the erstwhile Zia Mody's Chambers. A flourishing corporate law firm, Mody claims she is seriously thinking about courting this business.

“It is an interesting proposition and can provide an alternate revenue stream for us,” she says.

Typically, those into it claims they are providing high-end legal work. But clients say that it is mostly back-end, low-profile, labour-intensive para-legal work which is being outsourced.

This is something that the law firms are not worried about. “The work may not be too high-end but we can make up with sheer volume,” adds Mody.

Almost all the big players from Office Tiger to Evalueserve to Integreon, which began as traditional BPOs, are focusing on LPO. And most of their business is coming from two constituencies -- law firms and corporate legal departments.

Says Jason Brennan, director of legal services at Office Tiger, “As the global marketplace becomes increasingly competitive, corporations are being forced to streamline operations and cut costs in order to maintain profitability. Law firms are subject to increasing pressure from their clients to reduce costs and maintain profits per partner. These factors have given them an incentive to look at alternative sourcing methods.”

Or take Evalueserve, the BPO which has hired three lawyers and plans to hire seven more immediately. “Fortunately, the area is still nascent,” says Alok Agarwal, chairman, Evalueserve.

In fact, American conglomerate General Electric was one of the first to set up its captive BPO Gecis in India, which included LPO. Other technology companies, too, farmed out work to their Indian captive units.

That's because like other BPO activities, Indian lawyers come cheap. An associate lawyer in the US comes with a $225 per hour tag in the first year.

By the eighth year, it goes up to $450 an hour. In India, the rates are barely 10 per cent to 15 per cent of that. It isn't cost alone. With the time lag between India and the US and the UK, the turnaround time is 24 hours.

And now, with Indian law firms, too, donning their robes, it is a different case altogether. As Mody says, “We can bring more credibility to the business.”

Alliances: The Right Choice

'Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat' —Sun Tzu

Having interacted with a number of call centres in India and abroad, it has become clear to me that a strategic alliance is the most likely route to success for the third-party outsourcing call centers in India.

Most of the third-party call centers set up over the past few years were established by entrepreneurs who had been sold the dream by equipment/solution vendors—whose primary aim was to essentially sell their solution/equipment—that one had to just set up the call center and inbound business would come pouring in. There could be nothing farther from truth.

Why?

One, more than 90 percent of the business being done by third-party call centers is ‘outbound’ or ‘telemarketing’ and not ‘inbound’. Many of the call center entrepreneurs were not even aware that they would essentially become telemarketers, or else they would not have taken the plunge. Two, most of the entrants to this field were not from the services industry and opted for the route more as a diversification from their existing manufacturing activity where they were seeing a stagnation. By not being from a similar industry they did not appreciate the need to develop a customer acquisition strategy. So they faltered, soon after commencing their services. Their ‘delivery capability’ fell woefully short, mainly because they did not focus on this aspect of the business and took it for granted.

Dreams are now turning sour very fast and are seeing a major consolidation happening. The smaller players, who did not conceptualize the project well and did not take care of the working capital needs at the start, assuming that the business and cash inflows would start rolling from the first month, will either end up being taken over by larger players or just down their shutters. So what are the options?

At this juncture, it is important to understand that the adoption of a strategic perspective on outsourcing is today regarded as one of the most useful and important business methodologies, giving organizations world over the opportunity to liberate their full potential for profitability, efficiency and cost-effectiveness, and allowing them maximum flexibility in terms of retaining and broadening their customer base. Most of the organizations in the developed world have fully understood and adopted this approach towards business, resulting in a phenomenal growth in outsourcing (it’s a $600-billion segment), which is now increasingly leading to ‘offshore outsourcing’ primarily because of its enticing ‘value’ proposition (price/performance)—India’s delivery capabilities have now been validated over the years. To be cont .........